MacroScope

The Mark and George show

By Mike Peacock
June 12, 2014

The Mansion House dinner in the City of London is one of Britain’s big set-pieces of the year featuring speeches by Bank of England Governor Mark Carney and finance minister George Osborne.

Carney will be speaking a week before the Bank’s Financial Policy Committee meets and is expected to road test its new tools to calm the housing market. Among other measures, the BoE could recommend caps on the size of home loans granted in relation to a property’s value or a borrower’s salary.

There have been some signs of demand for mortgages slowing of late but London – the real hotspot – is being fuelled by an influx of foreign money which does not require a home loan to buy. The FPC could also suggest the government curbs its “Help to Buy” scheme which helps Britons get on the property ladder.

The International Monetary Fund has urged Britain to rein in risky mortgages to avert the risk of a property bubble. The latest housing survey from the Royal Institution of Chartered Surveyors, released overnight, showed house prices rose faster than expected in May but are expected to increase less over the next year as tighter lending conditions and concerns about the market weigh on demand.

Bank of England policymaker Ben Broadbent said yesterday that the housing market posed the greatest threat to Britain’s financial stability but that it so far bore little resemblance to debt-fuelled booms of the past.

Osborne’s people have already flagged that he will tackle suspected collusion among foreign exchange traders being investigated by London regulators. He will continue the theme of Britain’s semi-detached relationship with the EU.

He will reject European Union plans to outlaw currency market manipulation and instead set out his own proposals to make rigging exchange rates a criminal offence.

EU laws taking effect in 2016 will threaten a four-year jail term for rigging prices in a wide range of financial markets. Osborne does not want that to apply in London and will task a panel led by the Bank of England with recommending new criminal sanctions which officials say will be better tailored to the needs of the world’s biggest centre for currency trading.

Britain’s David Cameron faces another potential EU headache with a decision due on whether to admit Germany’s anti-euro AfD party into the ECR group of EU parties he set up after pulling out of the mainstream centre-right EPP group because it was too much in favour of integration.

The ECR has already welcomed in the anti-euro True Finns and the far-right anti-immigration Danish People’s Party into the fold so it’s hard to see why it would turn down the less extreme AfD unless some serious arm-twisting has been going on.

The problem for Cameron is that he is pinning his hopes on Angela Merkel to give his attempts to renegotiate Britain’s place in the EU a fair wind and cannot afford to annoy her. The Conservatives don’t have an overall majority in the ECR group so they could be outvoted and there is every chance that his MEPs will ignore him and sign up the AfD anyway.

Serious questions are being raised about Cameron’s EU strategy and what it says for his ability to keep Britain in the bloc.

He has so publicly opposed Luxembourg’s Jean-Claude Juncker, who he regards as an arch federalist, becoming European Commission President that if he does not succeed in blocking him the eurosceptic majority of his party is likely to react nastily and he will have made an enemy of the new top man in Brussels. If he succeeds, he will have put Merkel – who has backed Juncker – in an acutely uncomfortable position.

An al Qaeda splinter group has overrun Mosul, Iraq’s second largest city, and Saddam Hussein’s home town of Tikrit at lightning speed – more redolent of civil war than an insurgent onslaught.

Militants from the Islamic State in Iraq and the Levant (ISIL) are already in control of up to 15 percent of Iraqi territory and are closing in on the biggest oil refinery in the country. They now appears to have Baghdad in its sights.

The oil market is jittery as are Turkish assets after ISIL militants seized the Turkish consulate in Mosul and took 80 hostages. Ankara warned it would retaliate if any of its citizens were harmed and NATO held an emergency meeting late yesterday at Turkey’s request.

Separately, sources have told us that several mid-tier managers at Turkey’s central bank have been removed. No reasons have been given for the changes which come at a time that the central bank is at odds with Prime Minister Tayyip Erdogan’s government over interest rate policy, with Erdogan criticising the bank for doing too little to reduce borrowing costs.

Greece’s central bank will release its latest monetary policy report, a day after Yannis Stournaras was moved from being finance minister to central bank governor.

Italy will offer up to 8.5 billion euros of 3-, 7- and 30-year bonds at auction. There is no let-up in demand for euro zone debt (how times change). France is offering a 15-year inflation-linked bond via syndication and Cyprus is poised to become the last of the bailout countries to return to the market, having appointed lead managers for a bond issue.

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